The current boom in the US housing market is unlikely to lead to a crash – Quartz

The US housing market is still in a frenzy pandemicDemand caused by the long-standing housing shortage. In October, the number of existing homes sold nationwide rose 0.8% even as home prices continued to rise. After 15 consecutive months of price hikes, average home price In the third quarter of 2021, it was $404,700, an increase of nearly 20% over the previous year.

the press note More than 6 million homes may be sold this year, more than at any time since 2006. For those familiar with the real estate meltdown, this may be an ominous sign. The three-year housing boom nearly ended in 2008 as property prices plummeted, eventually leading to the global economic meltdown known as the Great Recession. as much as $16 trillion in home value been eliminated.

Economists argue that his time is different. Tight supply and rising demand – not lax lending standards – are driving the current boom. So, while the housing market in 2006 was a bubble waiting to emerge, this bubble appears to reflect the entry of a new generation of buyers into the market, and the prolonged turmoil of a global pandemic.

What Didn’t Happen: A Housing Bubble

To a large extent, the previous housing collapse was driven by an unprecedented wave of subprime lending (which was itself driven by demand for mortgages among investors). High-risk mortgages with high and often variable interest rates were offered to borrowers with poor credit history. By 2006, 20% of US mortgages Mortgage was (PDF). When home values ​​fell, many of these borrowers defaulted, leading to a systemic meltdown.

Economists it’s not concerned About a repeat of the previous housing crisis, in part because the fundamentals of mortgage lending are much stronger this time around. Today, subprime lending is becoming less common, thanks in part to federal regulations that have set stricter standards. Between 2009 and 2014, Subprime mortgages only make up about 1%. For all mortgage facilities in the United States.

Jeff Taylor, a former board member of the Mortgage Bankers Association with more than 20 years of experience in the mortgage industry, says loan products and underwriting guidelines no longer allow borrowers to take the same amount of risk.

“There are a lot of details in the game and being able to pay is a big consideration,” he says.

This time the higher house prices reflect the real demand

Strong demand is another reason the current housing market is unlikely to collapse anytime soon. The number of Americans who can reasonably buy a home, and who are now looking to buy a home, is increasing even as inventory continues to stagnate. The pandemic has contributed to this in three ways: The number of new homes coming onto the market has slowed as existing homeowners have decided not to sell; Emergency federal protections allowed people who lost their income to pause mortgage payments for a while, and supply chain and labor shortages left builders behind. They are scrambling to get new homes fast enough to meet the demand.

All this suggests that higher prices reflect real demand from homebuyers, and not just a speculative bubble. More Americans just want new homes, and are adequately equipped to finance it, at a time when so little is available.

Millennials Are Finally Buying Homes

A large part of the demand equation is that Americans between the ages of 25 and 40 are finally buying homes with numbers that mirror those of previous generations. The Great Recession of 2008 and 2009 delayed the home-buying dreams of many millennials who got into a tough job and lost the ability to build savings early on. Because many cannot afford to buy homes, they are not built.

“There were probably 6 million homes between 2008 and 2013 that were supposed to be built, but it wasn’t because millennials didn’t buy,” Taylor says. “This brings us to the day, where there are millions of homebuyers who cannot find homes because they are not there.”

Although home ownership is still out of reach for many millennials (just 42% of millennials own a home, versus 48% of Gen Xers and 51% of Boomers) now represent the largest segment of Americans entering the home buying market. Millennials are making more money and start families After their ancestors, but they are finally here, and they are looking for homes.

All of this means that what appears to be an exceptionally active housing market is in fact just the beginning of a generational shift. While that demand has always been forthcoming, the changing incentives of the pandemic, as well as lower interest rates providing more funding, has speeded things up.

What will happen to US home prices from here?

Taylor predicts that home prices, as well as the home purchase rate, will not slow or return toNormalanytime soon. He expects to see 4.5 million mortgages originating in 2022, and an annual home price increase of 5% to 13% over the next three years. This will present a challenge for those trying to enter the home buying market for the first time, but This means that the market as a whole is likely to remain strong.

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